Porter and Porter & Ors (No. 2)
[2020] FamCA 554
•25 June 2020
FAMILY COURT OF AUSTRALIA
| PORTER & PORTER AND ORS (NO. 2) | [2020] FamCA 554 |
| FAMILY LAW – PROPERTY – Setting aside orders and a binding child support agreement – Where, in 2014, the parties entered into a final property settlement order and spousal maintenance orders and a binding child support agreement – Where the final property settlement order, in part, required the acquisition of the home for the wife and children over a ten year period – Where the husband became bankrupt during that period – Where an order is made pursuant to s 79A(1)(b) Family Law Act 1975 (Cth) to set aside the property settlement order – Where the husband’s trustees in bankruptcy, the husband, the husband’s former fiancé and various entities were parties to the proceedings – Where a new property settlement order is made – Where the binding child support agreement is set aside and new child support orders are made – Where the husband’s application for discharge of the spousal maintenance order is dismissed. |
| Bankruptcy Act 1966 (Cth) Child Support (Assessment) Act 1989 (Cth) Family Law Act 1975 (Cth) |
| Barclays Bank Ltd v Quistclose Investments Ltd [1968] UKHL 4 Gallup & Gallup [2009] FMCAfam 839 Garning & Director-General, Department of Communities, Child Safety and Disability Services & Anor [2013] FamCAFC 28 In the Marriage of Cawthorn (1998) 23 Fam LR In the Marriage of La Rocca (1991) 14 Fam LR 715 Simpson & Hamlin (1984) FLC 91-576 |
| APPLICANT: | Ms Porter |
| RESPONDENT: | Mr Porter |
| 2nd RESPONDENTS: | P Pty Ltd |
| 3rd RESPONDENTS: | Q Pty Ltd |
| 4th RESPONDENTS: | R Pty Ltd |
| 5th RESPONDENT: | Mr Dunst & Mr Simons as Trustees in Bankrupt Estate of Mr Porter |
| 6th RESPONDENTS: | Ms O |
| 7th RESPONDENTS: | S Pty Ltd |
| FILE NUMBER: | SYC | 4014 | of | 2012 |
| DATE DELIVERED: | 25 June 2020 |
| PLACE DELIVERED: | Sydney |
| PLACE HEARD: | Sydney |
| JUDGMENT OF: | Watts J |
| HEARING DATE: | 11 - 14 March 2019; 14 October 2019; |
REPRESENTATION
| SOLICITOR FOR THE APPLICANT: | Litigant in person |
| SOLICITOR FOR THE RESPONDENT: | Litigant in person |
| SOLICITOR FOR 5TH RESPONDENTS | Litigants in person |
| SOLICITOR FOR 6TH RESPONDENT: | Litigant in person |
Orders
Pursuant to s 79A(1)(b) Family Law Act 1975 (Cth) (“the Act”), the property settlement order made on 20 June 2014 and as varied on 3 March 2015, be set aside.
Pursuant to s 136(1) Child Support (Assessment) Act, the binding financial support agreement made 23 June 2014 be set aside.
Pursuant to s 83(1) of the Act, the spousal maintenance order, being order 26 made 20 June 2014, be discharged.
All arrears under prior orders, agreements and third party debt notices are discharged to the date to which they stand paid.
Pursuant to s 79 of the Act, an order be made in accordance with paragraphs 6 to 20.
The Suburb E property
Within three (3) months, the wife pay to the Trustees the sum of $315,000 and discharge the Trustees of any liability in respect of the current mortgage to Westpac Banking Corporation on the property at WX Street, Suburb E (“the Suburb E property”).
Contemporaneously with the wife’s compliance with the preceding paragraph, the Trustees transfer to the wife all their right, title and interest in the Suburb E property and the Trustees shall withdraw any caveat the Trustees currently have lodged against the title of the Suburb E property.
In the event that the wife does not comply with paragraph 6, then the wife and the Trustees do all things and sign all necessary documents to sell the Suburb E property by either private treaty or auction as agreed between them or failing agreement, to be determined in accordance with this order, at a price set by the parties by agreement or failing agreement, to be determined in the way nominated by this order and the net proceeds of sale, after rate adjustments, be distributed as follows:
(a) Payment of the costs of sale including agent’s commission and legal fees;
(b) Discharge of the mortgage to Westpac Banking Corporation;
(c)Payment to the wife of 65 per cent (65%) of the balance;
(d) Payment to the Trustees of 35 per cent (35%) of the balance.
In respect of the sale referred to in paragraph 8, failing agreement between the wife and the Trustees:
(a)As to the selling agent, then as appointed by the President of the Real Estate Institute of New South Wales for the time being and
(b)As to whether or not the Suburb E property will be sold by private treaty or auction, the selling agent will make that determination
(c)As to a reserve price at auction or a sale price by private treaty, then as set by a real estate valuer appointed by the President of the Australian Property Institute from time to time
Ms O (and in the event she is not the sole director), the directors of CC Pty Ltd and, if necessary, the Trustees and the husband, do all things and sign all necessary documents to transfer to the wife all interest held by any of them in:
· The CC Trust which holds the units in the N Trust;
· N Pty Ltd;
· CC Pty Ltd.
Superannuation
In accordance with s 90XT(1)(b) of the Act and with the intention that the wife shall take 50 per cent (50%) of the interests of the husband in the Q Superannuation Fund (the fund), including the interest held by the fund in units in the unit trust which owns MN Street, Suburb G:
(a)The wife (or the wife’s administrators, executors, beneficiaries, heirs or assigns) is entitled to be paid the specified percentage out of the husband’s interest in the fund;
(b)The husband’s entitlement (or the entitlement of such other person to whom a payment may be made out of the husband’s interest) in the fund is correspondingly reduced by force of this paragraph; and
(c)The percentage specified for the purposes of this paragraph is 50 per cent (50%).
The trustee of the fund, BB Pty Ltd and Ms O as director of that trustee company, do all such acts and things and sign all such documents as may be necessary to:
(a)Calculate, in accordance with the requirements of the Family Law Act 1975 and the Family Law (Superannuation) Regulations 2001 the entitlement awarded to the wife in the immediately preceding clause of this Order; and
(b)Pay the entitlement whenever the trustee makes a splittable payment from the wife's interest in the fund.
The directors of the trustee of the fund, and the husband as a member of the said fund, shall do all things and sign all documents including but not limited to the signing of Trustee Minutes, serving of all relevant notices and signing all documents as may be necessary to effect the superannuation split referred to herein.
Paragraphs 11 to 13 have effect from the operative time and the operative time is seven (7) days after the date of service of this order upon the trustee and bind the trustee of the fund.
The Unit Trust
The shareholder(s) of BB 2 Pty Ltd transfer the wife one half of their shares in that company.
Ms O (and if she is not the sole director) the current directors of BB 2 Pty Ltd, do all things and sign all necessary documents to appoint the wife or a person she nominates in writing as a director of the company and thereafter she ensure that there is only one other director of BB 2 Pty Ltd.
In the event that it transpires that BB Pty Ltd does not own the units in the unit trust which owns MN Street, then BB 2 Pty Ltd shall transfer 50 per cent (50%) of those units to the wife.
The controlled monies account
Ms YZ (and if she is not the sole principal), the current principals of YZ & Associates, pay to the wife the whole of the monies in the controlled monies account and the wife shall be responsible for 51 per cent (51%) of any tax liability (including capital gains tax) in respect of the dispositions of the properties at FG Street, Suburb GH and QQ Street, Suburb G and the whole of the responsibility for any capital gains tax liability in respect of the disposition of Unit 1, MN Street, Suburb G and PP Street, Suburb G.
After Ms O’s compliance with all obligations under the property settlement order, any interim order restraining Ms O from dealing with any company or her interest in any company or resigning as director of any company, is discharged.
Debt in the husband’s bankrupt estate
The wife shall indemnify the Trustees in respect of any debt she has proved in the husband’s bankrupt estate.
Child support
All arrears of child support are discharged to the date to which payments have been made as at the date of these orders.
During the husband’s bankruptcy the husband is to pay to the wife periodic child support in respect of the three children in the sum of $1,000 per week (apportioned as to $333.33 per week per child) together with 100 per cent (100%) of private school fees for the children’s schooling and preschool costs; 100 per cent (100%) of all costs of the children’s school uniforms, compulsory school equipment, stationery and text books including but not limited to laptops and iPads; 100 per cent (100%) of school excursions, camps and school related events and 100 per cent (100%) of all costs related to the children’s medical and dental treatment, including private health treatment and health insurance.
Once discharged from his bankruptcy, the husband pay to the wife by way of periodic child support in respect of the three children, the sum of $2,100 per week (apportioned as to $700 per week per child) together with 100 per cent (100%) of private school fees for the children’s schooling and preschool costs; 100 per cent (100%) of all costs of the children’s school uniforms, compulsory school equipment, stationery and text books including but not limited to laptops and iPads; 100 per cent of school excursions, camps and school related events and 100 per cent (100%) of all costs related to the children’s medical and dental treatment, including private health treatment and health insurance.
Spousal maintenance
All arrears of spousal maintenance are discharged to the date to which payments have been made as at the date of these orders.
The husband’s application for the discharge of the current 2014 spousal maintenance order is dismissed
All other applications are dismissed.
If either party refuses or neglects to sign (within fourteen (14) days of a written request to do so) any documents necessary to effect the terms of these Orders, the Registrar of the Sydney Registry of the Family Court of Australia is hereby appointed pursuant to the provisions of s 106A Family Law Act to execute such documents on behalf of such party.
Note: The form of the order is subject to the entry of the order in the Court’s records.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Porter & Porter and Ors (No. 2) has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
Note: This copy of the Court’s Reasons for Judgment may be subject to review to remedy minor typographical or grammatical errors (r 17.02A(b) of the Family Law Rules 2004 (Cth)), or to record a variation to the order pursuant to r 17.02 Family Law Rules 2004 (Cth).
| FAMILY COURT OF AUSTRALIA AT SYDNEY |
FILE NUMBER: SYC 4014 of 2012
| Ms Porter |
Applicant
And
| Mr Porter |
1st Respondent
And
| P Pty Ltd |
2nd Respondent
And
| Q Pty Ltd |
3rd Respondent
And
| R Pty Ltd |
4th Respondent
And
| Mr Dunst & Mr Simons as Trustees in Bankrupt Estate of Mr Porter |
5th Respondent
And
| Ms O |
6th Respondent
And
| S Pty Ltd |
7th Respondent
REASONS FOR JUDGMENT
Introduction
In 2014 the husband was a professional and entrepreneur. The wife, who had a law degree, was not in paid employment and cared full time for three children, the eldest of which has special needs.
In May 2011 the husband and wife separated.
On 20 June 2014 the husband and wife entered a consent property settlement order (subsequently slightly amended by agreement in relation to arrangements for a new motor vehicle for the wife) which provided the wife a 75 per cent interest in a property which was to be purchased for $2,000,000. This arrangement was subsequently altered by agreement between the parties (without alteration to the property settlement order) so that a property was acquired by the parties for $2,310,000 but held 65 per cent by the wife and 35 per cent by the husband. The husband provided the funding, the bulk of which he raised by mortgage. It was a condition of the order that the husband repay that amount in full within a period of ten years. The husband took all of the business assets and superannuation. The husband and wife also reached agreement in relation to an order for spousal maintenance and a binding child support agreement which provided for periodic child support and the payment of private school fees.
In May 2014 the husband formed a new relationship with Ms O, the 6th respondent, with whom the husband worked. They bought a residence together in December 2014; became engaged in mid-2016 and now assert the future of their relationship is uncertain.
From about April 2017 the husband commenced to default in his obligations under the orders and the binding child support agreement. The wife and the Child Support Agency brought enforcement action and intercepted income payable to the husband from Organisation DF in order to satisfy arrears. The husband then sought to set aside the 2014 consent orders on the basis that they were made without jurisdiction, asserting that property did not exist at the date of the orders.
A final hearing was set to commence on 31 January 2018. From mid to late November 2017 the husband, Ms O and Mr BC, their chief executive officer, met with legal advisors, RR Lawyers and Mr TT (a barrister). A decision was taken that the husband would transfer all ownership and control of the business operations conducted by various companies and trusts to Ms O and for the husband to become bankrupt on his own petition. On the first day of the scheduled final hearing, the husband somewhat dramatically, announced he had been made bankrupt on his own petition that morning.
The final hearing was about whether all orders and agreements should be set aside, and if so what, new orders should be made.
The parties
In the end, all parties, including the husband’s Trustees in Bankruptcy, appeared as unrepresented litigants at the final hearing.
As will be explained, Ms Porter (“the wife”) became the applicant in the final trial. The respondents were:
·Dr Porter (“the husband”);
·The husband’s Trustees in Bankruptcy as the 5th respondents (“the trustees”);
·Ms O, the husband’s former fiancé; and
·Entities that Ms O controls arising from the transfers of interests in them to her in circumstances discussed below (the 2nd, 3rd, 4th and 7th respondents).
Whilst the trustee of the husband’s self-managed superannuation fund was not a party, that company is controlled by Ms O, as is the trustee company of a unit trust, the units in which are the most significant asset of the superannuation fund.
The 2014 orders and binding child support agreement
Central to the applications before me were consent orders and a binding child support agreement that the husband and wife entered into in 2014.
In summary, the important operative clauses of the 2014 consent property settlement order, whilst set out in full in Schedule 1, provided that:
·A property be acquired as the residential premises for the wife and the three children of the marriage of the husband and wife for an amount of $2 million
·The parties own that property as to 75 per cent by the wife and 25 per cent by the husband
·The husband have the responsibility of borrowing funds to finance the acquisition of the property which were to be repaid within 10 years from the date of the order
·At the end of 10 years or such earlier or later time, the parties agreed the wife would have the option to buy the husband’s share in the property
·If the wife was unable to do so the husband had the option of buying her interest
·The husband could not force a sale of the property earlier than 10 years unless agreed
·Otherwise the property would be sold and the parties would divide the net proceeds of the property, which would then be unencumbered, 75 per cent to the wife and 25 per cent to the husband
·The husband meet the costs of a particular type of motor vehicle for the wife and maintain that motor vehicle
·The husband maintain a life insurance policy over his life to an amount of $3 million with the wife to be sole beneficiary of those policies
·The husband retained all his shares in nine companies and his beneficial interest in five trusts and two business names
·The wife was to resign any office held in any of the companies and transfer any beneficial interest she had in the companies and the trusts
·The husband was to keep the wife indemnified for all debts and liabilities arising from any of the corporate entities and any debts arising from any income attributed to her by any of the entities
·The husband was to secure a release for the wife from any liability to any financial institution associated with any of the entities
·The husband also received the wife’s superannuation interest and retained all of his own superannuation interest in a self-managed superannuation fund
·The husband pay to the wife the sum of $65,000 over a period of 12 months.
As indicated, the parties did not implement the property consent order in relation to the acquisition of residential premises the precise terms of the order. They mutually agreed (an agreement not documented in writing) that they would purchase a property for more than $2 million. The husband and wife acquired the property at WX Street, Suburb E (the Suburb E property) for the sum of $2,310,000. This meant that instead of contributing $2 million to the purchase with a borrowing of about $1.8 million, the husband contributed $2.31 million towards the purchase (excluding stamp duty and legal expenses) with the assistance of a borrowing of about $2.1 million. Given the increased borrowing by the husband, it was agreed between the parties that the husband would take a legal interest in the property of 35 per cent rather than 25 per cent. Otherwise the essential terms of the order would apply, namely, that the husband within a 10 year period would be responsible for repaying the borrowing so that the property at the end of the 10 year period was unencumbered and the wife at that point would be entitled to 65 per cent of the equity in that property.
The consent orders also provided that the husband pay the wife spousal maintenance in the sum of $1,000 per week until the youngest child reached the age of 18 or completed a high school certificate; the wife earned $52,000 and/or the wife remarrying or entering a de facto relationship. The amount of $1,000 per week was to be adjusted in accordance with the CPI each 12 months with a provision that in the event the wife earned more than $30,000 per annum there would be a pro-rata adjustment for each dollar she earned over $30,000 per annum. There was a limited period of time pending the settlement of the purchase of the new residential premises where the order additionally provided that the husband paid the wife’s rent in the sum of $2,000 per week.
The consent orders also noted the parties had entered into a binding child support agreement for the husband to pay to the wife $700 per week for each of the three children (a total of $2,100 per week – this amount was not indexed) together with 100 per cent of private school fees for the children’s schooling and preschool costs; 100 per cent of all costs of the children’s school uniforms, compulsory school equipment, stationery and text books including but not limited to laptops and iPads; 100 per cent of school excursions, camps and school related events and 100 per cent of all costs related to the children’s medical and dental treatment, including private health treatment and health insurance.
Documents relied upon
The documents relied upon by the parties are voluminous and are set out in Schedule 2. The wife in her summary of argument document at pages 6 and 7 sets out a range of earlier affidavits of the husband and Ms O and Mr BC which were not relied upon by them. I have read those affidavits on the basis it seems the wife wanted to rely upon them. The husband sought leave at paragraph 7, affidavit filed 27 November 2017 to rely on eight previous affidavits which he had filed but that leave was, and is, not granted.
The wife has a law degree, is intelligent and did a commendable job in attempting to present and analyse complex material. There was, however, a tendency by the wife to view material predicated upon a general assumption by her that all the other parties’ were conspiring against her which caused her to concentrate on minutiae rather than a bigger more relevant picture.
The trustees are experienced trustees in bankruptcy. The husband and Ms O are also intelligent persons.
Given all the parties were unrepresented and the large volume of material, I indicated that because parts of it were relevant to applications pressed before me and other parts were otherwise inadmissible, I would admit all the material subject to relevance and I would ignore inadmissible material. Where there is a statement in the form of a submission, I would accept it as such if there was evidence otherwise to support the submission.
I also indicated that I would have regard to earlier interlocutory judgments delivered on 12 June 2018 and 28 June 2018. The first of those judgments dismissed the wife’s application to annul the husband’s bankruptcy and the second dismissed that part of the trustees’ application that relied upon s 79A(1)(a) Family Law Act 1975 (Cth) (“the Act”) or alternatively the court’s implied jurisdiction to set aside the property settlement order on the basis that the court had no power in 2014 to make the order. In that judgment there was a finding that the 2014 consent orders were validly made.
The Applications
In order to understand the issues to be decided, it is useful to set out the history of the applications made over time.
In 2017 the wife had applied to enforce the 2014 orders and binding child support agreement.
On 10 August 2017, in response to those enforcement proceedings brought by the wife in relation to monies outstanding under the consent orders and the binding child support agreement and prior to his bankruptcy, the husband had filed an amended response seeking he following orders:
a)That pursuant to s 79A(1) that the 2014 property settlement order be set aside;
b)That pursuant to s 83(1) of the Act the spousal maintenance order be discharged;
c)That the 2014 binding child support agreement be set aside pursuant to s 136(1) Child Support (Assessment) Act1989(the Assessment Act);
d)That consequential orders be made discharging arrears and any assessment that have been made relying upon the child support agreement;
e)That thereafter the husband pay the wife child support as administratively assessed in accordance with the Assessment Act.
This matter was originally set for final hearing commencing 31 January 2018. As indicated, during the first morning of the hearing, the husband announced to the court that he had just become bankrupt upon his own debtor’s petition filed 24 January 2018. It then became known that in the days before, the husband had transferred all his directorships and shares in multiple corporate entities to Ms O.
On 1 February 2018 the trustees consented to an application by the wife for the trustees to be jointly and severally joined as parties to the proceedings. The proceedings then had to be adjourned.
The trustees sought to pursue the application that the husband had formerly made under s 79A of the Act to set aside the property settlement order. They also initially purported to pursue the husband’s s 83 application.
Accordingly, until the eve of the new final hearing, the trustees were treated as applicants in the proceedings.
As indicated, the trustees made an application under both s 79A(1)(a) and s 79A(1)(b) of the Act.
After the trustees’ application to set aside the property settlement order under s 79A(1)(a) of the Act was dismissed on 28 June 2018, the trustees continued to press their application to set the 2014 property settlement order aside under s 79A(1)(b) on the basis that it was impracticable for the whole or part of the order to be carried out.
On the eve of the new final hearing, the trustees indicated that they no longer sought to pursue an application under s 79A(1)(b) but rather simply rely upon the trustees’ vested rights in the 35 per cent legal ownership of the husband as a joint owner of the Suburb E property. The trustees had assessed that interest to be in the sum of $315,000 and were willing to transfer their interest in the Suburb E property to the wife for that amount together with a discharge of any liability under the mortgage.
The wife’s application
As a result of the trustees not pursuing their s 79A(1)(b) application, the wife became the applicant in the proceedings. The wife’s application is contained in a Reply filed by her on 5 March 2019, initially requesting 20 orders. Centrally, order 3 sought that the court adjust the interest of the husband and wife in the Suburb E property so that she became entitled to 100 per cent of the equity in the property. This order, in effect, sought the trustees transfer to the wife all of their interest in the Suburb E property and the trustees remove the caveat that they had lodged on the title of the Suburb E property. In order to make that application, the wife relied upon s 79A(1)(b) and consequently the trustees and the husband (to the extent the wife’s application affected the husband’s non-divisible assets), became the respondent to an application under that section.
The wife sought orders also that the trustees transfer to her their interest in the N Trust which the wife asserted operated ST Business at BE Town; BF Business and ST Business at BG Town. As discussed below, there is only vague evidence as to the current value of this asset. The wife believed it was the most significant asset in the husband’s bankrupt estate. The trustees asserted that this interest was of no significant value and although they formally opposed the order sought by the wife, they did not do so with any vigour. The trustees agreed to submit to any order made in respect of the N Trust. The husband asserted that the constitution of the N Trust did not permit the trustees’ share to be transferred to the wife.
The wife also sought that the husband transfer to her any frequent flyer points accumulated by him. The trustees said that they didn’t think that the husband had any accumulated frequent flyer points but I took it that the trustees formally opposed the application.
As discussed below, the wife made an application that Unit 2, MN Street, Suburb G (Unit 2, MN Street) be transferred to her. That property is owned by BB 2 Pty Ltd as trustee for a unit trust, the units of which are said to be wholly owned by the husband’s self-managed superannuation fund, Q Superannuation Fund. The trustee of that fund is BB Pty Ltd. Both companies are now controlled by Ms O. Although the wife had not sought a splitting order in relation to the husband’s superannuation by way of proposing the normal form of order to do so pursuant to s 90XT(1)(b) of the Act, as a result of discussions throughout the hearing, the wife’s application has been treated as an application for a 100 per cent splitting order pursuant to s 90XT(1)(b) of the Act. The wife indicated it could become superannuation for her. The wife’s interest in the Q Superannuation Fund had been subject to a 100 per cent splitting order in the husband’s favour in 2014. The husband initially objected saying it was all he had left but then indicated that he would be prepared to split superannuation (not indicating what percentage split he would propose).
The wife sought that the husband’s application for the discharge of the 2014 spousal maintenance orders and the setting aside of the binding child support agreement be dismissed.
The wife sought a declaration that the husband be liable to pay her a sum of slightly over $6 million which was asserted to be a combination of past arrears under the property settlement order, spousal maintenance and the binding child support agreement and a capitalisation by way of future lump sums of liabilities under that agreement.
The wife further sought orders that involved the interests of Ms O and the entities Ms O controls as follows:
a)That the whole of the amount held in a controlled monies account with the wife’s former solicitors YZ & Associates (the controlled monies account), be released to her. As discussed below, that amount is in the approximate sum of $739,000;
b)That Ms O’s property at Suburb BJ be sold and that after the discharge of the mortgage, the wife receive slightly over $1 million from the proceeds of the sale and Ms O receiving the balance;
c)That Ms O sell the property at PP Street with the wife receiving the net proceeds of sale after discharge of the mortgage to the WW Bank without regard to Ms O’s unregistered mortgage (and caveat). On 22 May 2020 the court was informed that the property had been sold (discussed in more detail below) and the whole of the net proceeds of sale were placed in the controlled monies account and included in the total referred to in (a);
d)That Ms O, as controller of the trustee company of the husband’s self-managed superannuation fund, to do what necessary as trustee to transfer the units in a unit trust which holds the Unit 2, MN Street, to the wife;
e)That Ms O remove caveats lodged by her on titles of particular properties (all of which have now been sold, with Ms O removing her caveats to allow settlement of those sales).
It was indicated that three claims made by the wife (paragraphs 5.11, 5.12 and 5.13) which were based upon allegations by the wife against the husband of fraud, misleading and deceiving behaviour and gaining benefit by deception, could not proceed given that they had not been previously raised in that form and no directions had been made for a proper pleading of those claims nor had the husband been given any opportunity to respond to those claims. That did not mean that the wife could not raise the husband’s behaviour in the context of her other applications.
It was further explained to the wife that paragraphs 5.19 and 13, which related to the cost of the litigation, would potentially be a matter for a further application after the delivery of judgment in the substantive proceedings in the event that any application for costs was made.
The wife also sought a number of orders involving third parties who had not been joined to the proceedings and who had not been given any notice of the proceedings. These included orders sought at paragraph 9 (involving the Commissioner of Taxation), paragraph 11(a) and (b) (involving RR Lawyers); paragraph 11(c) (involving YY Group) and paragraphs 15 and 16 (involving ZZ Group). The wife was informed that she could not proceed with those applications, against persons who were not parties, as part of the final hearing.
The wife in her summary of argument lists likely issues in the proceedings to include setting aside transactions, contravention of orders and various aspects of the involvement of RR Lawyers. No specific application was made by the wife to set aside any transaction or to deal with any person for contravention of orders.
The remaining orders sought by the wife were of a machinery nature.
At an earlier procedural event on 26 April 2018, the wife informed the court that she proposed to make an application pursuant to s 106B of the Act to set aside the instrument which led to the husband’s bankruptcy but no such application was pursued nor on the evidence I have, would it likely to have been successful. As already mentioned, the wife had earlier failed in her application to have the husband’s bankruptcy annulled.
The husband’s Trustees in Bankruptcy
As indicated, the trustees sought the wife pay the sum of $315,000 which they assessed to be 35 per cent of the current equity in the Suburb E property and in return, they would transfer their interest in that property to the wife subject to being discharged from any responsibility under the mortgage on Suburb E.
The trustees submit at paragraph 109 of their draft outline of submissions (Exhibit 53), that they represent the interests of creditors, including the Deputy Commissioner of Taxation, and oppose any order which amends or alters the interest of the husband (now vested in the trustees) in the Suburb E property.
Somewhat inconsistently, in the trustees’ draft outline of submissions the trustees said:
85. …The trustees accept that the wife should be awarded the vast majority of the assets, solely because of her need to care for the children, including the disabled son (also see R & R [2000] FamCA 388).
The trustees go on to say:
87. The concern of the trustees is that the wife wants over 100% of the available assets, rather than say 80%, leaving nothing for the creditors, including the DCT, who have funded her lifestyle and must not be ignored.
Section 59A of the Bankruptcy Act provides that s 58 and s 59 of the Bankruptcy Act have effect subject to an order under Part VIII of the Family Law Act. What that means is that any rights that the wife had under the 2014 orders are not subsumed in the husband’s bankruptcy.
The property divisible amongst the creditors in the husband’s bankruptcy does not include non-divisible assets. Section 116(2)(d)(iii) of the Bankruptcy Act provides that one category of non-divisible assets is the husband’s interest in the Q Superannuation Fund. Accordingly, the trustees made no submission as to what should happen on a re-exercise of discretion under s 79 in respect of the husband’s interest in that fund.
The trustees also treated interests in a number of pieces of real estate were held by different companies as trustees of trusts in respect of which the husband was a beneficiary, as non-divisible assets. Ms O also, directly or indirectly, held interests in two of four of these properties. As these properties were sold, the net proceeds relevant to the husband’s interests were placed in a controlled monies account with YZ & Associates. The trustees, at paragraph 106 of the outline of submissions, indicated that they did not oppose a transfer to the wife of any of the non-divisible assets which included the monies in the controlled monies account when either enforcing current orders or when making new property orders. The trustees in those written submissions say that the husband did not oppose that course and the husband did not say otherwise. The trustees at paragraph 108 of their outline of submissions say that it is their understanding that Ms O would not oppose the wife receiving the monies in the controlled monies account subject to taxation debts being paid upon the income paid into the controlled monies account. Ms O, having received 49 per cent of the proceeds of two of the four properties in her own right, did not make any application seeking any order that she receive any of the funds in the controlled monies account but only that they be used to attend to the incidence of taxation arising from the sale of the properties which provided the source of the funds in the controlled monies account.
As mentioned, the trustees submitted to any order made in respect to any interest the husband had in the N Trust.
The trustees submitted that the husband does not have any legal or beneficial interest in VV Pty Ltd or JK Pty Ltd.
The trustees did not oppose Ms O’s application that she be given leave to resign as a director of various companies or deregistering various companies, subject to the court being satisfied as to whether it was appropriate to do so.
The husband
On the first day of the hearing the husband said from the witness box that he wanted to recast the application he was making in relation to variation of spousal maintenance and child support.
On the second day of the hearing (12 March 2019), the husband provided a document (Exhibit 56) which sought that orders be made to the following effect:
CURRENT SITUATION AS A BANKRUPT
1)leave the income garnishee in place where $1000 be attributed to Child Support and $1000 be attributed to Spousal Maintenance
2)An extra $500 per week be attributed as spousal maintenance in a lump sum from controlled monies to assist in retraining should [the wife] wish to pursue further studies in aid in seeking paid work
3)The 35% of the Suburb E property be exchanged for a market sum to the Bankruptcy and trustees as a potential way to negotiate with the creditors to be discharged from bankruptcy
4)An amount from the controlled monies be placed in an account to pay for B Porter’s school fees till 2021 (when I am discharged as a bankrupt)
5)An amount from the controlled monies be placed in an account to pay for D Porter’s school fees till 2021 (when I am discharged as a bankrupt)
6)Prepayment of a full years tuition for C Porter whom has been accepted into a good school recently
7)[The wife] can use Coles or Woolworths delivery service which is offered in her area
8)A sum equal to the capital gains tax payable and personal tax debt generated by the garnishee order paid to me or directly to the ATO
9)All other controlled monies to be applied to [the wife]
10)Any add back from the third party debt agreement found to be in error I would like applied directly to reduce [the wife’s] legal fees
POST BANKRUPTCY
1)That child support be paid via the Child support agency formula, which can take into account further changes in custody of the children as I can forsee B being more of an issue for [the wife] as he gets older
2)Spousal maintenance in the form of $500 per week until D reaches the age of 18
3)Further Child support in the form of $500 per week should B stay in the care of [the wife] in any amount given she has discussed placing him in a group home when he is older, however I would take him full time if necessary to avoid this
4)If [the wife] does not keep acting in the fashion of a vengeful litigant I would take on all educational expenses for the children however this last point is not possible if I am constantly fighting in court
5)Any add back from the third party debt agreement found to be in error I would like applied directly to reduce [the wife’s] legal fees
During final submissions, the husband explained he sought that provision be made for the payment of a tax liability which he has incurred since his bankruptcy.
The husband said the wife could receive some split (unspecified) of his superannuation.
Ms O and the other respondents
Ms O is the sole director of S Pty Ltd and is the only shareholder. S Pty Ltd incorporated on 23 April 2013; Ms O has always been a shareholder.
At date of the commencement of the final hearing, Ms O was employed by VV Pty Ltd at $150,000 per annum plus superannuation. As I understand it, the husband is employed by JK Pty Ltd (of which he was not an office bearer after the beginning of 2018) under an agreement referred to below with a base salary of $250,000 per annum.
In 2018, VV Pty Ltd had gross profit of $1,176,913 and net profit of $31,463. The most significant expense was wages and salaries.
Ms O also operated the businesses BY Business (2018 gross profit $92,942) and BZ Business (2018 gross profit $66,691). Ms O asserts that neither businesses made a net profit in 2018. It was not suggested that these businesses were of any value relevant in these proceedings.
By way of a minute of proposed order filed 21 February 2019, Ms O sought the following:
a)Payment from the controlled monies account held by YZ & Associates in relation to the sale of Unit 1 MN Street to the Australian Tax Office in relation to capital gains tax and to a chartered accountant for the costs of the preparation of tax returns;
b)Payment from the controlled monies account in relation to the sale proceeds of QQ Street, being an amount of 51 per cent of any amounts payable to the Australian Tax Office in relation to capital gains tax in respect of the sale of that property and 51 per cent of the costs of the chartered accountant for the preparation of tax returns;
c)Payment from the controlled monies account of 51 per cent of the capital gains tax arising from the sale of the property at Suburb GH and a payment of 51 per cent of the chartered accountant’s tax invoice in relation to preparation of associated returns;
d)Payment (presumably from the controlled monies account) of tax associated with the P Trust for a period between October 2018 and December 2018 of an amount of about $272,555.
Ms O also sought that she be permitted to resign as director of various entities and deregister seven companies (only one of which was a party to the proceedings).
Ms O opposed the order sought by the wife for the sale of her property at Suburb BJ and the payment to the wife of slightly over $1 million.
Part of the company structures at date of trial
Prior to his bankruptcy, the husband had connections with 31 companies whether by way of directorship or shareholding or both, most of which, according to the trustees, were simply shells. Whilst the structure of the husband’s overall affairs are complex and are referred to in the three reports of the trustees dated 27 February 2018, 20 April 2018 and 17 December 2019, the following entities are of some relevance.
P Pty Ltd
Ms O is the sole director of P Pty Ltd which was incorporated 9 January 2015. She held 98 out of 200 shares in the company. P Pty Ltd was the trustee of P Property Trust which formerly owned FG Street, Suburb GH (FG Street).
CC Pty Limited
Ms O is the sole director and shareholder of CC Pty Limited. This company is a 51 per cent unit holder in CF Property Trust. This company is the trustee of the CF Property Trust which formerly owned QQ Street, Suburb G (QQ Street).
Q Pty Ltd
Ms O is the sole director of Q Pty Ltd and her company is the sole shareholder. Q Pty Ltd is the trustee of FF Trust. As trustee of that trust, this company formerly owned a property at Unit 1, MN Street, Suburb G (Unit 1 MN Street).
R Pty Ltd
Ms O is the sole director of R Pty Ltd and her company is sole shareholder. This company is trustee of VV Property Trust which owned PP Street, Suburb G (the PP Street property). The whole of the net proceeds of the sale of that property have been deposited into the controlled monies account.
BB Pty Ltd
Ms O is the sole director of BB Pty Ltd which, as already mentioned, is the trustee of the Q Superannuation Fund. This company owns all units in the unit trust of which BB 2 Pty Ltd is the trustee. So far as I am aware, the husband is the sole member of the fund.
BB 2 Pty Ltd
Ms O is the sole director of this company which is the trustee of a unit trust and owns Unit 2, MN Street.
CC Pty Ltd
Ms O is the director and her company is sole shareholder of CC Pty Ltd. This company is the trustee of the CC Trust which owns 625 units out of 1713 units in the N Trusts (Trustee N Pty Ltd), operates ST Business (BE Town) and ST Business and BF Business (BG Town). The day to day controller of these businesses is the husband’s cousin, Mr BL, who was not called as a witness in these proceedings.
The unreliability of the husband’s evidence
Overall I was not impressed with the husband’s evidence. Not necessarily because the husband deliberately set out to give false evidence but simply because he was not sufficiently interested in engaging with the process to be able to give accurate evidence. One example was his evidence that he didn’t get legal advice on bankruptcy prior to Christmas 2017. When confronted with documents he conceded that was inaccurate. The day he saw Mr TT for advice was the same day as the wife had filed an application that she be appointed as Receiver for his various corporate entities.
For reasons set out later, I conclude the husband is not telling the truth about his arrangements with Mr CQ.
The husband’s lack of provision to the court of important financial details, particularly in relation to his superannuation interest, has made it difficult to make a precise property adjustment.
I am also left in some doubt as to the extent to which the husband has fully disclosed his financial circumstances.
Background facts
The husband was born … 1973 (currently aged 47).
The wife was born … 1974 (currently aged 45).
Ms O was born … 1980 (currently aged 40).
In late 2001 or 2002 (there are different versions which are of no consequence), the husband and wife commenced cohabitation.
On … 2004 the parties married.
On … July 2003 the husband and wife purchased a property at BN Street, Suburb BP for $625,000.
On … 2006 the first child of the husband and wife, B, was born. B was diagnosed with Trisomy 21 (more commonly known as Down Syndrome).
After B’s birth, the husband and wife moved to City BT, USA, so that the husband could complete a qualification.
On … 2008 the second child of the husband and wife, C, was born.
In mid-2008 the husband and wife returned from City BT and purchased a property at BQ Street, Suburb BR for approximately $1,850,000. The wife managed a number of renovations to the property and it was sold 18 months later for $2,400,000.
On 28 October 2009, the husband and wife sold the Suburb BP property for $735,000.
On … 2010 the third child of the husband and wife, D, was born.
In November 2010, the husband and wife were directors, shareholders and beneficiaries of the FF Trust. On 2 November 2010 Q Pty Ltd as trustee of the trust to purchase a property at BM Street, Suburb W for the sum of $3,100,000. The husband received the interest in this property (in the trust) as a result of the 2014 orders.
On 4 February 2011 the husband and wife separated.
On 25 July 2011, BB 2 Pty Ltd as trustee of a unit trust, the units of which were wholly owned by the self-managed superannuation fund of the husband and wife, purchased Unit 2 in MN Street, Suburb G (Folio Identifier …) for $599,500. The property was unencumbered. A lease to the husband was registered on the title of the property expiring on 25 July 2016. It contained four options of five years each.
In 2012 the husband and wife were divorced.
In 2013 the PP Street property was purchased by R Pty Ltd for $670,000. There was evidence during the hearing that the mortgage to WW Bank was in arrears and the bank was threatening legal action. The husband claimed that if PP Street was sold (as it now has been), fit out cost of $450,000 would be lost.
On 24 May 2013 S Pty Ltd (Ms O’s company) was incorporated.
In May 2014 the husband and Ms O commenced their relationship
On … 2014 contracts were exchanged for the purchase of the Suburb E property for $2,310,000 in the names of the husband (as to 35 per cent) and the wife (as to 65 per cent).
On 20 June 2014 the property settlement order was made (the consent orders). The orders which the parties signed did not reflect the different value of the property upon which the parties had exchanged contracts. No amendment was ever made to the orders to reflect that change.
On 23 June 2014 the wife signed a binding child support agreement.
On … 2014 the purchase of the Suburb E property was settled. The amount of $2,194,500 was borrowed from the Commonwealth Bank.
On 21 July 2014 the husband signed the binding child support agreement.
In late 2014 Ms O worked full time with the husband as director and supervisor.
From late 2014, the husband and Ms O developed businesses known as BW Centre; JK Pty Ltd; BX Business; HJ Pty Ltd and BY Business.
On 4 November 2014 the property at BM Street, Suburb W was sold by the husband for $3,230,000.
In December 2014, husband and Ms O purchased AB Street, Suburb F (“the Suburb F property”) with each having a 50 per cent interest and occupied it as their home. The contributions to the acquisition of Suburb F and the servicing of the loan associated with its acquisition were not interrogated by the wife and the matter proceeded on the basis that Ms O had a 50 per cent interest in the equity in AB Street.
On 3 March 2015 consent orders were made amending order 6 made on 20 June 2014 providing that the husband fund the acquisition and running costs of a replacement motor vehicle for the wife when the lease on her current motor vehicle expired.
On 25 March 2015 the FG Street property was purchased by P Pty Ltd for $1.7 million.
In 2016 the husband sold three investment properties at J Street, Suburb CW and Suburb CY. I have no information about the history of the acquisition of these properties. They were not referred to in the 2004 property settlement order although it is possible that some or all of them might have been held at that time by the companies the husband retained under those orders.
In mid-2016 the husband and Ms O became engaged.
In February 2017 Mr BC was employed by the husband and Ms O as the financial controller of their businesses.
In April 2017 the husband ceased regular repayments on the mortgage on the Suburb E home loan.
On 13 July 2017 the Commonwealth Bank issues the first s 57(2)(b) Notice in respect of Suburb E.
Also in July 2017 a notice of default and demand was received by the husband and Ms O from the Commonwealth Bank relating to their mortgage on the Suburb F property stating the amount outstanding as at 10 July was $2,679,515.
On 17 October 2017 the sale of the Suburb F property settled. The husband paid from his share of the proceeds the sum of $644,383.69 to the Commonwealth Bank to discharge an overdraft liability which was not secured against the Suburb F property. Ms O received the amount of $623,106 (plus half the deposit balance after agent’s commission) from the sale.
On 26 October 2017 the wife received $29,000 from the Child Support Agency from funds intercepted from the sale of the husband’s interest in AB Street, Suburb F.
On 31 October 2017 the wife received $26,710 from the Child Support Agency intercepted from the proceeds of sale of Suburb F.
Ms O says by October 2017 she was aware the husband and his companies had substantial debts. Ms O asserts that on 17 October 2017 she lent a sum of $699,133 to the husband and JK Pty Ltd from money received from the sale of Suburb F. Ms O says “I lent the money to Mr Porter to assist him to pay some of his debts and the debts of JK Pty Ltd”. She says her partner was distressed at not being able to pay his debts including meeting his responsibility under the 2014 spousal maintenance order and binding child support agreement. Ms O says there was an agreement that she would take security over the following properties:
a)PP Street (owned by VV Property Pty Ltd);
b)Unit 1 MN Street (owned by Q Pty Ltd);
c)FG Street, Suburb GH (owned by P Pty Ltd); and
d)QQ Street (owned by P Pty Ltd).
The four properties were subsequently subject to orders of the court dated 1 February 2018.
A loan agreement between the husband and Ms O was signed. The amount of the loan is $699,133. The Loan Deed dated 3 November 2017 provides that the loan amount is subject to interest at a rate of 5 per cent per annum or 10 per cent per annum in default. It bears the date 3 November 2017, although that is not the date it was signed. The document was signed either later in November or in December 2017.
After the settlement of the sale of the Suburb F property, the husband and Ms O obtained rented accommodation.
On 7 November 2017 the wife filed an application for enforcement of the husband’s obligations under the property settlement order, spouse maintenance order and binding child support agreement. The wife asserted there was arrears at that time owing by the husband in excess of $400,000. By that date, a second s 75(2)(b) notice had been served on the husband and wife in respect of the Suburb E property by the Commonwealth Bank.
On 18 December 2017 Ms O received a deed of guarantee and indemnity:
a)From P Pty Ltd as trustee of the CF property trust and the P Property trust;
b)From VV Property Limited as trustee of the VV Property trust;
c)From Q Pty Ltd as the trustee for the FF Trust;
d)From P Pty Ltd as trustee in respect of the PP Street property.
On 20 December 2017 the Husband as the director of the registered proprietors of the four properties referred to in the preceding paragraph executed mortgages in favour of Ms O which remained unregistered. Ms O lodged caveats over each of the four properties.
In late 2017 or early 2018, branches of businesses at Suburb GH and CG Town conducted by entities associated with the husband were closed.
On 16 January 2018 Ms O registered the business name “VV Pty Ltd”.
On 22 January 2018 Ms O was appointed sole director of CC Pty Ltd whose is the sole shareholder in S Pty Ltd. CC Pty Ltd is also the trustee of CC Trusts.
On 24 January 2018 the husband applied to become bankrupt and completed a Debtor’s Petition.
On 24 January 2018 Ms O established BZ Pty Ltd.
On 25 January 2018 the husband commenced employment for VV Pty Ltd on a contract entitling him to receive approximately $250,000 gross income per annum plus superannuation and standard leave entitlements. The company could provide the husband with additional discretionary benefits for his services, the details of which are not set out in the employment contract. The standard hours of working under the contract were 38 hours per week with reasonable additional hours with no monetary benefit payable. The agreement also provided that the husband assign all his rights to income payments to the employer company and assign all his current and future intellectual property and associated property such as copyrights.
On 29 January 2018 the property at Unit 1, MN Street sold for the amount of $406,500. The net proceeds the sum of $79,177 was paid into a controlled monies account pursuant to a consent order made 1 December 2018.
On 30 January 2018 the wife was advised of the husband’s bankruptcy when she received Ms O’s affidavit on that day. She also learnt that Ms O asserted she had lent $699,133.98 to the husband on 17 October 2017.
On 31 January 2018 the husband filed a Statement of Affairs.
On 31 January 2018 Ms O became the sole director (and shareholder) of 13 companies previously controlled by the husband, namely:
a)CA Pty Ltd;
b)Q Pty Ltd;
c)VV Property Pty Ltd;
d)CC Pty Ltd;
e)CC II Pty Ltd;
f)CC II Pty Ltd
g)BY Pty Ltd;
h)CB Pty Ltd;
i)CD Pty Ltd;
j)P Pty Ltd;
k)BB Pty Ltd;
l)BB 2 Pty Ltd;
m)CE Pty Ltd.
On 31 January 2018 the 5th respondents were appointed joint and several trustees of the husband’s bankrupt estate.
By order 1 made 1 February 2018, the trustees were joined as a party. Also on that day a suite of interlocutory orders were made aimed at preserving assets. Relevantly an order was made relating to the proceeds of any sale of the properties over which Ms O had an unregistered second mortgage. The effect of those orders was that Ms O received, through S Pty Ltd, 49 per cent of the net proceeds of the sale of FG Street, Suburb GH and the QQ Street properties but that the whole of the net proceeds of sale of Unit 1 MN Street and PP Street were deposited into the controlled monies account.
In February 2018 the trustees lodged a caveat on the WX Street property.
The trustees issued reports to creditors dated 27 February 2018 and 20 April 2018.
On 26 April 2018 an order was made creating a garnishee on income payments in an amount of $2,000 per week in favour of the wife.
On 26 April 2018 the wife’s application for an order under s 153A of the Bankruptcy Act to annul the husband’s bankruptcy was dismissed.
Also, on 26 April 2018 I made the following order:
9.The third party debt notice is suspended to the extent necessary so that the only amount to be collected under the third party debt notice is the sum of $2,000 per week.
From 17 May 2018 the wife commenced to receive $2,000 per week. There is a dispute between the parties as to whether these amounts were always received each week and what arrears (if any) are owing. Prior to 17 May the wife was receiving monies under a third party debt notice.
On 25 May 2018 the sale of the QQ Street property was completed with 51 per cent of the net proceeds, being $195,000, paid into the controlled monies account.
On 8 June 2018 contracts were exchanged on the Suburb GH property for the amount of $2,850,000. The settlement took place on 20 December 2018.
On 30 September 2018 Ms O says that she left the rented accommodation at Suburb F which she had shared with the husband.
In October 2018 the husband moved out and Ms O moved back into the rented Suburb F property.
On 4 December 2018 some units in the N Trust (not those held by CC Trust) were sold by the liquidators of V Pty Ltd to the husband’s cousin, Mr BL, for a sum of $25,001. I note in passing that the husband retained the interest in the EE Trust as part of the 2014 orders.
On 20 December 2018 the sale of the Suburb GH property was settled. The WW Bank was paid the amount of $1,645,808. The amount of $255,000 was placed in the controlled monies account (per orders made 6 December 2018). Ms O provided a withdrawal of caveat.
On 8 March 2019, Mr BC gives notice to the wife that the husband is now employed in his new company, UU Pty Ltd.
On 14 March 2019 an order was made by way of partial property settlement that the wife receive $200,000 from the controlled monies account.
On 4 September 2019 VV Pty Ltd Pty Ltd was placed into liquidation.
On 18 November 2019 contracts for the sale of the PP Street property sold. The sale price was $1,150,000.
On 11 March 2020 the sale of the property at PP Street settled. The net proceeds were placed into the controlled monies account after payment had been made to the WW Bank.
The husband’s financial position towards the end of 2017
In November 2017 the husband said in the five months between July 2017 to October 2017, his gross income was $1,139,341 with “profit before payment of loans and creditors of $607,377” and JK Pty Ltd’s profit was $33,133.
The husband asserted that as at October 2017 this income was insufficient to service an overall debt position “for the Group” which he asserted was $8,543,086 (paragraph 35 affidavit 27 November 2017), including a debt to the WW Bank in the sum of $3,695,268.
By 3 November 2017 there had been six payments each of $15,000 to WW Bank to reduce the debt to an estimated $3,665,268 (paragraph 37 affidavit 27 November 2017).
The husband asserted that he was unable to maintain the regular mortgage payments on the Suburb E property.
In his financial statement filed 21 December 2017 (exhibit 58), the husband lists his 35 per cent interest in the Suburb E property as his most significant asset. He provides estimates of the equity held in various pieces of real estate by various companies and says that his indirect interest in JK Pty Ltd and eleven other trusts is $1,823,615. In this document he estimates his personal liabilities to be $5,257,332 plus unpaid child support at $43,216.
Steps taken by the husband in the latter part of 2017 and January 2018
During the latter part of 2017 and January 2018, as the commencement of the final hearing at the beginning of 2018 approached, the husband and Ms O had a number of discussions which led them to agree to take a number of actions, including:
·Ms O agreeing to lend her share of the proceeds of Suburb F to the husband to pay his creditors ($699,133)
·RR Lawyers preparing a loan agreement, in the form of a Deed, between Ms O (as lender) and the husband and JK Pty Ltd (as borrowers). The principal sum was $699,133. The Deed is signed but undated. The express purpose of the loan was “Payment of aged payables and arrears of the business operated by the Borrower and any related company, including but not limited to RR Lawyers, CH Pty Ltd and CJ Pty Ltd”. The loan provided for an interest rate of 5 per cent (default interest at 10 per cent). The monies were repayable on demand on 21 days notice by Ms O. The deed refers to the giving of security over unspecified real estate
·On 18 December 2017, P Pty Ltd; Q Pty Ltd and R Pty Ltd, companies the husband controlled and which were registered proprietors of PP Street; Unit 1 MN Street; FG Street; QQ Street, providing guarantees and indemnities to Ms O. On 20 December 2017 these companies provided an unregistered mortgage over these properties.
·In December 2017 the husband “working on some forms relating to bankruptcy”
·Having discussions about what was owed to WW Bank and Westpac
·The husband deciding to “go bankrupt” and “resign as director”
·Ms O agreeing to be appointed director of the husband’s companies as detailed above. Forms were prepared to notify ASIC of these changes in directorships.
By 10 January 2018, Mr TT, the barrister had advised upon the bankruptcy and restructure and who appeared for Ms O and the companies at a number of interlocutory applications, including those on 26 April 2018 and 22 June 2018, had done work for which he was paid $4,004.
On 24 January 2018 there was a meeting at RR Lawyers. Apart from the husband, Ms O and I infer solicitor(s) from RR Lawyers, other persons present were Mr BC (who was then the financial controller of the husband’s and Ms O’s businesses) and Mr TT.
Over some hours the group worked upon the husband’s “Bankruptcy Statement of Affairs” and documents relating to the liquidation of V Pty Ltd and JK Pty Ltd.
The husband’s bankruptcy
The wife, primarily acting without legal assistance, has at all times sought to establish that the husband’s insolvency was a sham.
On 26 April 2018 the wife’s application under s 153A Bankruptcy Act to annul the husband’s bankruptcy was dismissed with reasons reserved. Those Reasons were provided on 12 June 2018.
At [15] – [18] of the Reasons for Judgment dated 12 June 2018, I recorded:
15.The Trustee gave evidence that:
15.1The husband’s secured creditors are owed $3,902,797;
15.2The husband’s unsecured creditors are claiming $7,966,358, but that includes a claim by the wife of $4,505,000 (which claim, as I understand it, is based upon her doing a mathematical calculation of all monies payable by the husband to her or on her behalf until 2024 under the 2014 orders and binding child support agreement);
15.3Westpac is claiming $1,922,725 in respect of which they have a charge against various equipment that has been leased by the husband or entities associated with the husband. The Trustee has assumed that that equipment might be able to be disposed of for $576,817, which would leave an unsecured debt to Westpac of $1,345,908. All up the unsecured creditors, excluding the wife, are in the sum of $4,807,266;
15.4There are still a significant number of creditors who have yet to have lodged a proof of claims which are predicted to total in the vicinity of $915,180. In questioning by counsel for Ms O, the Trustee said that there were certain significant debts that still had not yet been taken into account but in respect of which the Trustee had some notice. This included a debt to Ms T of an amount of $155,000 and Mr U of an amount of $89,500. Reference was also made to a possible additional claim against the husband by V Pty Ltd for insolvent trading; and
15.5The main asset the husband has remaining is the interest he has in the property in which the wife and the children reside. That asset has been assessed as being an amount in the husband’s hands of about $350,000. Consequently, the husband is facing a deficit of $5,372,446 when looking simply at unsecured creditors (excluding the wife).
16.The Trustee raises the issue of preferential payment having been made to the Commonwealth Bank and believes an amount may be able to be recouped from the Commonwealth Bank. However, although there is no clear evidence before me, it seems that it was generally agreed that it may well be that the Commonwealth Bank has an all monies mortgage on the property in which the wife is residing and clawing back an amount from the Commonwealth Bank will only lead to them claiming under the mortgage on the wife’s residence. [it was subsequently established that the Commonwealth Bank did not have an all monies mortgage]
17.The husband also has superannuation which is not included in his bankrupt estate.
18. The wife cross examined the Trustee in relation to various creditors and put into question debts totalling about $1.3 million. These debts include the amount of $669,133 allegedly owed to the husband’s partner, Ms O. Whilst the Trustee said he had a formal proof of debt in relation to a number of those debts. I accept that the wife, in the context of the application before me, did not have full opportunity to forensically test whether or not the claims from those creditors could be partially or wholly supported. The wife also questioned the resale value that the Trustee used in determining the Westpac debt regarding the equipment.
As will be seen, at the end of the day, there was no successful challenge by the wife to the source of the funds which Ms O made available to the husband nor to the value of the equipment.
The income which the husband had to generate and was for a time generating, to comply with the 2014 arrangements, had to be substantial.
The husband, as well as being a highly skilled professional, was also an entrepreneur. In that role, he took on debt, overcapitalised and in the end did not have the income streams to service the debt.
The trustees opined that the husband and wife had been living beyond their means for some years since 2014 and some portion of their lifestyle has been funded through the non-payment of taxes. The trustees in their report of 20 April 2018 comment:
The garnishment of his income payments as detailed has significantly reduced cash flow…it appears from the evidence obtained by me that 49% of [the husband’s] gross income payments are being intercepted and paid to Child Support Registrar and that the remaining 45% of gross income payments are withheld to the maximum of $20,000 per month for [the wife].
At the end of the evidence in the final hearing, there was no effective challenge by the wife to the evidence given by the trustees that was recorded in the interim Reasons for Judgment dated 12 June 2018 set out above. At the time of the husband’s bankruptcy, he had secured creditors that were owed $3,902,797 and excluding the wife, had unsecured creditors of $5,372,446. Even if those matters which the wife had raised had been determined in her favour, I accept the trustees’ evidence that the husband would still have been “hopelessly insolvent” at the date of his bankruptcy.
The ownership, contributions to and disposal of AB Street, Suburb F
The husband and Ms O purchased AB Street, Suburb F as their home as joint tenants in December 2014. Their contributions from their own resources to the deposit and stamp duty were roughly equal.
As indicated, in July 2017 a notice of default and demand was received from the Commonwealth Bank in relation to Suburb F, stating the amount outstanding at October 2017 was $2,679,515. The Suburb F property was the residence of the husband and Ms O up until the time it was sold and the settlement of the sale happened on 17 October 2017. The husband used his one half share of the proceeds of sale to discharge a liability with the CBA in the sum of $644,383.69 and Ms O used her half share of the proceeds of sale to fund a loan to the husband to assist him in paying debts and providing working capital for the business.
The wife disputes the loan and relies upon the fact that there was no indication in three affidavits filed by the husband on 17 October 2017; 21 December 2017 and 22 January 2018 of the existence of a loan between he husband and Ms O. The husband was shown his financial statement sworn 21 December 2017 (which was drawn by Ms DE from RR Lawyers) which makes no reference at all to any loan from Ms O.
As already mentioned, there is in evidence a loan document that was said to be entered into between the husband and Ms O dated 3 November 2017. The husband said that the loan document may have been backdated and may have been part of what Mr TT had advised needed to be drawn up.
Even if the loan document was backdated, I am satisfied the monies were advanced by Ms O to the husband by 8 November 2017. The source of these funds are Ms O’s entitlement in the Suburb F property and the wife has not established otherwise. At page 213 of Ms O’s affidavit of 23 January 2019, she annexes a copy of a trust account statement in her sole name from RR Lawyers printed on 8 May 2018 entitled “Re: Sale of AB Street, Suburb F, NSW”. The statement starts with a deposit on 18 October 2017 of $632,106.58 being Ms O’s share of the proceeds of sale of Suburb F. There is a further journal transfer on 18 October 2017 of $67,027 from the trust account of matter 217350 which was the trust account for the joint sale of AB Street, Suburb F and represents one half of the deposit monies. So, on 18 October 2017, RR Lawyers held $699,133 from the sale of Suburb F in Ms O’s name and by 8 November 2017 the bulk of those funds had been moved into the husband’s control.
Monies are disbursed from this account so that by 13 April 2018 there is an amount of $41,003 left.
Relevantly the following funds are disbursed from this trust account:
8.11.17
RR Lawyers general account “Loan to husband & JK Pty Ltd”
$450,000
10.1.18
Mr TT
$4,004
24.1.18
To the trustee (which was reversed and paid to a different account on 29.1.18
$10,000
23.3.18
Mr TT
$23,793
The trustees record the following information in their three reports about the money owed to Ms O:
·The trustees record in their first report a debt provable in the husband’s bankruptcy owing to Ms O in the sum of $699,133
·In their second report to creditors (at page 41), the trustees note:
We have been advised that Ms O will be lodging a proof of debt shortly and the trustees understand that the proof of debt may be for an amount of $699,133.
·Earlier in their second report the trustees record that Ms O has security by way of second mortgage against four properties owned by the three companies in respect of this debt.
·In the third report to creditors, the trustees note the amount disclosed on the Statement of Affairs as owing to Ms O was $699,133 and on the Proof of Debt the sum of $1,131,156 (page 14; Exhibit 74)
The issue has arisen as to whether the amount of $450,000 which the husband paid to RR Lawyers on account of legal fees, from monies lent to him by Ms O, might be recoverable as a preferred payment. The trustees submitted on the wife’s application to reopen the hearing, that the payment by Ms O was one which should be categorised as a “Quistclose Trust” (see Barclays Bank Ltd v Quistclose Investments Ltd [1968] UKHL 4) because the money was advanced by Ms O for a particular purpose and if the husband makes payments consistent with that purpose, those payments are not recoverable as a preferential payment from RR Lawyers. In the alternative, if they were not made consistent with the purpose for which Ms O had lent the monies then Ms O is entitled to recover those monies from RR Lawyers.
In relation to this sum of $450,000, there is no indication that any alleged preference payment is going to be pursued. I assess the likelihood of the trustees chasing that payment as low.
I accept that by 8 November 2017 the husband received a loan from Ms O in the sum of $699,133 to assist the husband in paying debts and providing working capital for the business. That amount was paid to RR Lawyers who disbursed it in ways that were not fully explored during the hearing but which included payment by RR Lawyers to themselves for outstanding legal costs and also probably included a repayment to Ms O or entities controlled by her to assist in cash flow over the Christmas/New Year period in 2018/2019 in a sum of about $80,000.
The initial loan of $699,133 by Ms O to the husband is not monies to which the wife can point in order to buttress an argument that the husband was not insolvent at the date of his bankruptcy nor would this additional loan make any difference to the husband’s insolvency.
RR Lawyers
The wife’s suspicions that RR Lawyers have acted inappropriately in the advice given to relevant persons in the events of late 2017 and early 2018 in particular and more generally are increased by the fact that RR Lawyers acted for the husband, Ms O, many of the associated companies and Mr BC. RR Lawyers have acted in relation to the transactional work involved in the disposal of various properties and the transfer of the units in the N Trust. At paragraph 468 of the wife’s affidavit filed 21 February 2019, the wife alleges collusion between the trustees and RR Lawyers. During the hearing the wife did not produce any evidence to substantiate her contention that RR Lawyers were involved in professional misconduct and/or unprofessional conduct. The wife’s application in her Reply filed 5 March 2019 foreshadowed the possibility of an application under s 106B of the Act to set aside a payment by the husband to RR Lawyers of $450,000 on 9 November 2017. However, the wife did not make that application. On 22 May 2020 in the hearing of the wife’s second application to reopen the hearing, the wife made an oral application to join RR Lawyers as a party to the proceedings. That application was dismissed.
Ms O’s property at BK Street, Suburb BJ
The wife sought an order for the sale of Ms O’s property at BK Street, Suburb BJ (the Suburb BJ property). That asset was purchased by Ms O in 2013 prior to her meeting the husband.
Ms O has worked as a professional since 2004. She has owned property since 2005 when she purchased a property in DA Street, Suburb DB in June 2005. DA Street was sold to enable Ms O to acquire an interest in an earlier property at Suburb F (not AB Street) with her then husband in 2010. Ms O separated from her husband in February 2012, they divorced in 2013 and divided their property pursuant to a financial agreement.
Ms O acquired the Suburb BJ property in 2013 partly using the proceeds of half an interest in the Suburb F property that she held with her former husband and monies provided to her by her father. The balance purchase price was borrowed from a financial institution. The property is tenanted and is positively geared, that is, the regular payments to the mortgagee and other outgoings on Suburb BJ are covered by the rental income.
The wife has not established that Ms O’s interest in the Suburb BJ property has any relevant connection to the husband. The wife’s application in relation to Suburb BJ will be dismissed.
MR BC taking over JK Pty Ltd
Mr BC was born on … 1975 and is now the director of UU Pty Ltd which was registered on 8 February 2019. Mr BC had been the financial controller of the businesses operated by the husband and Ms O since February 2017. As mentioned, he was involved in the restructure of the husband’s affairs from late 2017.
The affidavits of Ms O and Mr BC, both filed 8 March 2019, set out future proposals in relation to the sale of PP Street and the future involvement of Mr BC during the husband’s bankruptcy. Mr BC says the conversations with Ms O started in late 2018. In her affidavit of 8 March 2019, provided on the eve of the trial, Ms O refers to conversations (at unspecified times) with Mr BC. An agreement was reached that Mr BC would take over the businesses trading as JK Pty Ltd (a business with 21 employed staff, contracted staff and the husband).
Mr BC’s company offered an employment contract to the husband on similar terms previously provided to him by Ms O’s company. Mr BC said he was aware that a portion of income payments to the husband were being intercepted by child support.
Mr BC’s evidence is that there is to be a shift in the business strategy away from owning properties out of which businesses operate to placing those businesses into premises owned by third parties.
Section 79A(1)(b) and Section 79A(1A)
Section 79(1)(b) of the Act provides:
Setting aside of orders altering property interests
(1) Where, on application by a person affected by an order made by a court under section 79 in property settlement proceedings, the court is satisfied that:
…
(b) in the circumstances that have arisen since the order was made it is impracticable for the order to be carried out or impracticable for a part of the order to be carried out;
…
the court may, in its discretion vary the order or set the order aside and, if it considers appropriate, make another order under section 79 in substitution for the order so set aside.
In the Marriage of La Rocca (1991) 14 Fam LR 715 at 720-721, Kay J expressed the view that s 79A(1)(b) should be narrowly interpreted so that the circumstances that have arisen since the order was made which make it impracticable to carry out the orders are circumstances:
…that could not reasonably have been contemplated and that in such circumstances, whilst impossibility is not the test and impracticability is, it may then become just and equitable to change the orders.
The potential insolvency of one of the parties in the future is not such a matter, in my view. In every case before the court property values may change, go up and down, business may flourish or not flourish, the vicissitudes of life may affect one of the parties.
…However the commercial failure of one of the parties post the making of the orders which would not lead to the orders not being capable of being fully implemented does not, in my view, amount to a basis on which to set the order aside.
That situation leads to a problem with enforcement. It may be that the bankruptcy laws would have to take over, but it is not an appropriate basis for having the order set aside and fresh orders made at the behest of the party who suffered the financial embarrassment. There is no provision in the legislation to have matters looked at a second time if one of the parties suddenly becomes wealthy and, in my view, I do not see that the legislation can be appropriately read as applying where one of the parties becomes suddenly poor, in normal business circumstances.
In the Marriage of Cawthorn (1998) 23 Fam LR 86 at page 95, the Full Court endorsed the stricter construction of s 79A(1)(b) adopted by Kay J. The Full Court in Cawthorn observed that a party (in this case originally the trustee) could not have relied upon the husband’s default to ground an application under s 79A(1)(b) unless such default was due to circumstances quite beyond the husband’s control, saying that a party cannot rely upon what, using language of the doctrine of frustration in contract, a “self-induced frustration”.
Prior to the eve of the final hearing, at a time when it was the Trustee making the application under s 79A(1)(b) the trustee had submitted that the husband had not implemented the 2014 order because the original borrowing was not a ten year borrowing on the principal and interest basis. However it wasn’t necessary under the 2014 order for the husband to enter into a borrowing for ten years on a principal and interest basis. What was necessary under the 2014 order was at the end of the 10 year period for the husband to have discharged the mortgage on the property that was purchased.
The trustees also had pointed out that the original 2014 orders were never implemented in the first place. The purchase price of the Suburb E property and the percentage in which the parties held the title to that property were not in accordance with the orders. If that was the only problem then, given the parties’ consent to the variation under the orders, those 2014 orders might have possibly been able to be varied by implying that the parties consented to that variation pursuant to s 79A(1A) of the Act.
Given that it is the wife who is making an application under s 79A(1)(b), I am comfortably satisfied that the wife can rely upon the extreme commercial failure of the husband, which has been described above, to establish that the fulfilment of the original 2014 orders are impracticable.
In any event, given that the wife is making an application to set the 2014 orders aside with the consent of both the husband’s trustees and the husband, the provisions of s 79A(1A) are attracted and the court may make an order setting the 2014 orders aside.
In the event that the orders are set aside either under s 79A(1)(b) or s 79A(1A) of the Act, the court may, if it considers it appropriate, make another order under s 79 in substitution for the order so set aside.
The debt to the Commonwealth Bank secured against the Suburb E property is about $1,878,000. This was to be paid out by 2024 at which time the wife would have been entitled under the altered arrangement with the husband, to 65 per cent of the unencumbered value of the Suburb E property. I find that since the 2014 orders have been made, the way the husband has conducted his business operations has made it impracticable as at the date of the hearing for the husband can fulfil the requirements necessary to carry out his responsibilities under the 2014 orders.
Ms O says she worked hard both before and during her relationship with the husband to acquire assets and has seen the loss of her interest her home at Suburb F, the businesses in the Eastern suburbs and CG Town and property investments.
Ms O has received 49 per cent of the proceeds of the sale of FG Street and QQ Street and retains her interest in her property at Suburb BJ. Ms O has provided discharges of mortgages upon the sale of the four properties and has become an unsecured creditor in the bankrupt estate in relation to the loan from Ms O of her half of the proceeds of the Suburb F property.
As at March 2019, Ms O indicated that her intention was to cease to be a supervisor/director for VV Pty Ltd and the business of JK Pty Ltd. She intended to continue as a supervisor at NP Company (an unrelated business) at Suburb F. She had previously indicated she would return to establish her own business or work as a contractor, saying that working at Suburb F was more convenient to her home and role as a mother to her two primary school children. She said she “needed to take a break” from the stress of the debts of the business and this litigation.
In the likely event that the relationship between the husband and Ms O continues, with this litigation finalised it is also likely Ms O may reassess her willingness to continue assisting the husband in future business activities. I assess the prospects of Ms O and the husband continuing in a business relationship likely in conjunction with Mr BC, as probable.
Ms O advances no claim in this case against the husband arising out of their de facto relationship.
The husband has made an application to set aside the binding child support agreement. That agreement will be set aside for reasons set out below. A new assessment in relation to child support will be made based on the husband’s current level of income. Whilst the husband remains an undischarged bankrupt, that level of income to the wife is likely to be significantly less than the income that she is currently entitled to under the previous agreement.
Again, I am not confident that, notwithstanding the investigations and inquiries, I know everything about the husband’s current financial position and in particular, whether or not the stated arrangements between him and Mr BC represents the entirety of the arrangements between them.
In relation to s 75(2)(o) of the Act, the trustees have expressed the opinion that it was the generosity of the settlement by the husband in 2014 which was the genesis of his unstable financial position in 2017. Aside whether or not the original agreement was generous at the time (mindful of what the husband received under that agreement), I accept that the husband’s responsibility under the agreement was a factor which led to the demise of the husband’s financial situation. However, that is not the real reason for the husband’s financial collapse. The husband at all times knew what financial commitments he had made to the wife in 2014 which he was to discharge over a ten year period. He should have taken them into account in a more realistic way as he extended his entrepreneurial endeavours. In the end, it was decisions taken by the husband in relation to his financial gearing as he expanded rapidly in enterprises both connected to his chosen profession and outside it, that led to his bankruptcy. The wife is entitled to feel aggrieved that the benefit of the orders and agreement that she had entered into with the husband in 2014 was put in jeopardy by the husband, particularly in circumstances where she had handed all of the matrimonial assets to him.
That said, in 2014 the wife must have been aware that the property settlement order was founded upon an assumption that the husband would be able to properly service the borrowing of approximately $2 million and extinguish that debt over a 10 year period. The wife took on any risk inherent in that proposal when agreeing to the settlement. Why she did so was understandable. Apart from the interest in his superannuation fund and real estate in entities controlled by the husband, the wife was transferring to the husband his entrepreneurial operations which may have had a significantly reduced value had they had to be liquidated at the time in exchange for an interest in real estate that was not in existence at the date of the property settlement orders. She had also been able to negotiate an advantageous ongoing spousal maintenance and child support arrangement.
Finally, as I have already indicated, notwithstanding the vast number of pages of documents in this case and the significant financial inquiries the trustees have made in respect of the husband’s position, the husband has failed to provide complete information to enable me to have a comprehensive understanding of his financial position.
Conclusion relation to s 79(4)(d) – (g) adjustments
Ordinarily, when there are two pools of assets which have been the subject to different contribution considerations, the adjustment pursuant to s 79(4)(d) – (g) would be carried out on the combined results of the contribution assessment in respect of both pools. In this case however the matter is complicated by the fact that there are three parties involved not two. In those circumstances it is appropriate to make s 79(4)(d) – (g) adjustments separately to both pools.
In relation to pool 1, on a contributions basis, the trustees (on behalf of the husband’s unsecured creditors) retain an equity in Suburb E in the sum of $315,000. The wife will receive the units in the N Trust. The trustees will be able to pursue any potential recovery of preference payment to the Commonwealth Bank and will be responsible for the payment of their own fees and distribution of any remaining amount (small that it will be) to the large amount of the husband’s unsecured creditors. In those circumstances I find that it is not appropriate to make any further adjustment to pool 1 pursuant to s 79(4)(d) – (g) of the Act.
In relation to pool 2, taking into account the factors that have been discussed above, I find that it is appropriate to make a further adjustment in favour of the wife of 12 per cent.
Just and Equitable
Taking into account the findings in respect of contributions and s 79(4)(d) – (g) considerations in respect of pool 2, pool 2 should be divided between the husband and wife as to 82 per cent to the wife and 18 per cent to the husband of assets to which values can be ascribed. As indicated, that will be on the basis that the wife is responsible for 51 per cent of the tax in respect of the distribution of the FG Street property and the QQ Street property and 100 per cent of the tax on the distribution of the Unit 1 MN Street property and PP Street property. Also, current arrears of spousal maintenance and child support shall be discharged.
The husband be responsible for tax incurred during his bankruptcy.
I am mindful that, given the history of this matter, s 81 of the Act encourages a s 79 order which is as final in its terms as it can be. However in this case, there are limits to which finality can be achieved. It is appropriate to give the wife an opportunity to retain the Suburb E property (notwithstanding the lack of evidence of the pathway by which she may do that). I acknowledge that the wife taking control of the CC Trust may lead to other litigation elsewhere involving the husband’s cousin but there is little I can do to guard against that possibility.
I acknowledge that having to make a splitting order in respect of the husband’s superannuation fund is not ideal. There is uncertainty as to whether or not the super fund is a compliant fund. As already mentioned, the husband did not produce financial statements for the fund during this hearing. It is clear however that there is a substantial asset that is said to be owned by the husband’s superannuation fund, namely, Unit 2 MN Street. The wife shall receive one half of the husband’s interest in the superannuation fund and if it turns out that Unit 2 MN Street is not owned by the superannuation fund but is owned simply as an asset of a unit trust, then the wife in the alternative, is to receive one half of the units in the unit trust that owns that property.
Again, I acknowledge the wife receiving 50 per cent of the superannuation fund may lead to continuing disputes between Mr BC, the husband and possibly Ms O given that a business is currently run from those premises effectively owned by the fund. I am unaware as to what the current arrangements are between the superannuation fund as landlords and the entity or entities running those business as tenant in respect of leasing of the property. Any future disagreement would be in the nature of a commercial dispute between landlord and tenant. Any sale of PP Street by the trustee of the superannuation fund would need to be subject to any existing leases that are currently in place.
Whilst I am mindful that the evidence I have in relation to the value of the Suburb E property may be somewhat dated, it is the best evidence that I have and no party sought to update that evidence when the application to reopen the hearing was made. I shall make an order that the wife pay the Trustees $315,000 and discharge any liability the Trustees might have in respect of the mortgage on the Suburb E property with a provision for a default sale of Suburb E if she is unable to use that opportunity. In the event of a default sale, the trustees should receive 35 per cent of the net proceeds of sale.
I also find it is appropriate that the wife receive the amount in the controlled monies account.
I acknowledge that doing justice to the wife in the circumstances of this case has been made particularly difficult by the complex nature of the husband’s financial arrangements, the opaqueness of many of those arrangements and the doubt I have as to whether I have got a complete picture of the husband’s financial circumstances. In the end the distribution of assets, as set out in the table in the next paragraph, achieve what is effectively a 82/18 split and is the most appropriate and just and equitable property settlement order possible.
A division of assets with known values in pool 2 will accordingly be as follows:
Wife
65 per cent of equity in Suburb E
$585,000
Partial property order
$200,000
Artwork and jewellery
$120,000
Controlled monies account
$738,859
50 per cent of the husband’s superannuation interests
$453,750
$2,097,609
Husband
50% of the superannuation interests
$453,750
The Binding Child Support Agreement and child support
The parties entered into a binding child support agreement in 2014. There is no issue that that agreement has been accepted by the Child Support Registrar. There is no suggestion that the agreement was obtained by fraud, a failure to disclosure material information, undue influence or unconscionable conduct.
The husband relies upon the provisions of s 136(2)(d) of the Assessment Act which is in the following terms:
The court may set aside the agreement in accordance with the application if the court is satisfied:
….
in the case of a binding support agreement – that because of exceptional circumstances, relating to a party to the agreement or a child in respect of whom the agreement is made, that have arisen since the agreement was made, the applicant or the child will suffer hardship if the agreement is not set aside.
(emphasis added)
It is the husband’s case in these proceedings that exceptional circumstances relating to himself have arisen since the agreement was made and because of those exceptional circumstances, he will suffer hardship if the agreement is not set aside.
The exceptional circumstances asserted by the husband are his bankruptcy; health issues and disciplinary difficulties he is having with his professional body.
When considering whether or not “exceptional circumstances” exist:
a)the whole circumstances have to be taken into account;
b)it may be that one circumstance alone cannot be described as exceptional but the whole of the circumstances, when looked at cumulatively, might be described as exceptional (see Gallup & Gallup [2009] FMCAfam 839);
c)within a particular context whether something is exceptional is a matter of “fact and degree” (see Simpson & Hamlin (1984) FLC 91-576);
d)care must be taken to avoid placing any “gloss” on the word “exceptional” as used in legislation (see Garning & Director-General, Department of Communities, Child Safety and Disability Services & Anor [2013] FamCAFC 28);
e)the words “that have arisen since the agreement was made” in s 136(2)(d) of the Assessment Act, direct the court’s attention to the circumstances that existed at the date the agreement was made and towards an inquiry as to what exceptional circumstances have arisen since the date of the agreement which would result in the applicant or the child suffering hardship if the agreement was not set aside.
Parliament set different standards for setting aside different types of agreements. Section 136(2)(c) of the Assessment Act sets out a different and less onerous threshold test for the purposes of setting aside a limited child support agreement. That test is “significant change in circumstances” and is to be contrasted with the expression “exceptional circumstances”. Upon the introduction of the exceptional circumstances test by way of amending legislation in 2007, the explanatory memorandum made it explicit that the provision was introduced because “[i]t is not intended that binding agreements should be set aside lightly”.
The legislative intent of s 136(2)(d) of the Assessment Act has to be judged in the context of the whole of the Assessment Act. The Objects of the Assessment Act (section 4) provide, inter alia:
(2) Particular objects of this Act include ensuring:
(a) that the level of financial support to be provided by parents for their children is determined according to their capacity to provide financial support and, in particular, that parents with a like capacity to provide financial support for their children should provide like amounts of financial support;
…
(3) It is the intention of the Parliament that this Act should be construed, to the greatest extent consistent with the attainment of its objects:
(a) to permit parents to make private arrangements for the financial support of their children…
Section 136(2)(d) of the Assessment Act evidences a legislative intent to allow private ordering which is not to be interfered with lightly. This is particularly important if (as in this case) the parties were settling all their future financial matters.
Consequently the bar that the husband has to satisfy is high.
I am not assisted by any detailed submissions in respect of the discharge of the child support agreement or what should replace it and accordingly I have adopted a broad brush approach notwithstanding I am asked to make final orders, based upon only the evidence that was presented at the hearing.
As noted above, the current binding child support agreement (Exhibit 51) obliges the husband to pay to the wife $700 per week for each of the three children (a total of $2,100 per week). Subject to a child not commencing full time employment or no longer living with the wife, this obligation continues until the child is 18 or completes high school (whichever last occurs). This weekly amount is not indexed. The binding child support agreement also requires the husband to pay 100 per cent of private school fees for the children’s schooling and preschool costs; 100 per cent of all costs of the children’s school uniforms, compulsory school equipment, stationery and text books including but not limited to laptops and iPads; 100 per cent of school excursions, camps and school related events and 100 per cent of all costs related to the children’s medical and dental treatment, including private health treatment and health insurance.
Clause 2.3 of the binding child support agreement requires the husband to pay:
2.3 All of the children’s private school fees for D Private school 1 for C Private school 2 and for B such private school fees as may be agreed between the parties.
[as per original]
Subsequently in 2016 the parties agreed that C would attend Private school 3. Unfortunately by April 2017 the husband was saying that he could no longer afford those private school fees and ultimately C was suspended from Private school 3 on 26 April 2017. He spent approximately five weeks at home with his mother until an arrangement was reached so that he could return.
In the event that the husband’s application to set the 2004 binding child support agreement aside is successful, the orders that he seeks in substitution for his obligations in respect of the payment of child support are summarised above. The husband only seeks to pay a periodic amount for the children commensurate with the formula under the Assessment Act based on a salary of $250,000 per annum and taking other obligations to pay private school fees into account. The weekly periodic figure could be quite low. There is no ongoing commitment by him to pay private school fees for the children during his bankruptcy.
The husband does say that post-bankruptcy he would be prepared to take on all education expenses for the children but that commitment is conditional upon the wife ceasing litigation which the husband views as her being vengeful.
In the wife’s financial statement filed 13 June 2018 she sets out her weekly expenses in respect of the children. They total $1,269.50 (see Part N). The expenses do not include any expenses for accommodation or educational expenses at private schools. The husband didn’t challenge the wife’s evidence in relation to any of those specific expenses and overall they are reasonable when taking into account the lifestyle that the parties were used to living. I have no evidence as to what allowance should be made for accommodation. As at 13 June 2018, the amount required to service payments on the Suburb E property was $11,048 each month ($2,551 per week). The wife would need to service ongoing borrowings if she was to retain the Suburb E property. I am satisfied that the wife’s needs in relation to the children is at the level of the periodic payment provided for in the binding child support agreement.
The debt which the husband incurs under the binding child support agreement which he was unable to pay during his bankruptcy, does not merge in the bankruptcy but I am discharging it as part of the adjustment of financial obligations under the property settlement order.
I am satisfied that at the current time the husband does not have the capacity to meet all his obligations under the binding child support agreement and I conclude that during the period of the husband’s bankruptcy, exceptional circumstances exist such that hardship will be occasioned to the husband if the agreement is not set aside during the period where his earning capacity is constrained by his current employment contract and the potential call on his earnings by the trustees. Accordingly, the binding child support agreement should be set aside.
The court may make orders consequential upon setting aside a binding child support agreement as it considers just and equitable for the purposes of preserving or adjusting the rights of the child or a party to the agreement (s 137 of the Assessment Act).
During the period of the bankruptcy, the husband has indicated that he would be prepared to agree to a continuation of the current interim arrangement whereby the sum of $2,000 per week is being deducted from available payments to be apportioned as to $1,000 per week by way of child support (as well as $1,000 per week by way of spousal maintenance). This proposal in relation to periodic child support is just and equitable during the husband’s bankruptcy as long as he continues to meet the non-periodic payments to which he was otherwise committed.
Once the husband has been discharged from his bankruptcy however and given the findings that I have made about his capacity to pay, I further find it is just and equitable that payment of child support should be returned to the levels that were previously required under the binding child support agreement which has been set aside, including payment of private school fees.
Spousal maintenance
As indicated above, the consent orders made in 2014 provided that the husband pay the wife spousal maintenance in the sum of $1,000 per week until the youngest child reached the age of 18 or completed a high school certificate; the wife earned $52,000 and/or the wife remarrying or entering a de facto relationship. The amount of $1,000 per week was to be adjusted in accordance with the CPI each 12 months with a provision that in the event the wife earned more than $30,000 per annum there would be a pro-rata adjustment for each dollar she earned over $30,000 per annum.
Also as indicated, the husband’s application is that he continue to pay an amount of $1,000 per week by way of spousal maintenance to the wife during his bankruptcy but thereafter he seeks an order that that amount be reduced to $500 per week until D (the youngest child) is 18 years of age.
Relevantly in this case, s 83 of the Act provides that the court may not vary the 2014 order unless it is satisfied that the circumstances of the person liable to make payments under the order have so changed as to justify it doing so.
In this case the husband relies upon his significantly decreased income and property as a result of his bankruptcy to submit that a reduction by half (if indexation is not taken into account) is justified.
Section 83(7) of the Act provides that the court shall have regard to s 72 and s 75 of the Act.
Section 72(1) of the Act provides:
(1) A party to a marriage is liable to maintain the other party, to the extent that the first‑mentioned party is reasonably able to do so, if, and only if, that other party is unable to support herself or himself adequately whether:
(a) by reason of having the care and control of a child of the marriage who has not attained the age of 18 years;
(b) by reason of age or physical or mental incapacity for appropriate gainful employment; or
(c) for any other adequate reason;
having regard to any relevant matter referred to in subsection 75(2).
The s 75(2) considerations have been discussed above when considering what property settlement order should be made and I have regard to that discussion when considering this part of the application.
I am mindful of the respective property which the husband and wife receive as a result of the property settlement order.
In the wife’s financial statement sworn 13 June 2018 she sets out her weekly expenses for herself, being an amount of $9,891 per week. However, that sum includes a weekly stated commitment in relation to legal fees of $7,500 per week. The wife’s stated debt in relation to legal fees is $176,000 outstanding. I infer the wife is not paying regular instalments of legal fees at the current time as she would not have the capacity to do so.
Excluding legal fees, the wife’s regular weekly expenditure reduces to $1,131 per week ($8,631 - $7,500). None of the wife’s claims could be seen as unreasonable given the usual standard of living of the parties to date.
Two issues arise in respect of considerations under s 72(1). The first is the assertion by the husband that the wife is not properly exercising her earning capacity.
In her affidavit of 21 February 2019 the wife at paragraphs 52 – 58 makes assertions in relation to her current earning capacity. The wife asserts she does not have any capacity for gainful employment. The wife completed her law degree in 2003 however has not been admitted to practice and has not worked in paid employment since she went on maternity leave in May 2006 prior to B’s birth. The wife asserts that she is “deskilled”.
The wife sets out her then weekly routine with the children and gives in some detail evidence about the difficulty she has in managing B.
The wife in this case has demonstrated an ability to present significant volumes of complex material in a reasonably coherent fashion. She has also represented herself in these proceedings with impressive presentation. Notwithstanding the duties that she has as a parent, given the ages of the children and the assistance the husband is now giving with B, I do not accept the wife’s assertion that she does not have any capacity for gainful employment. I accept that it would be difficult for her to re-enter the workforce on a fulltime basis. I accept that the wife’s earning capacity has been compromised by the time that she has been out of the workforce and the responsibilities she has had and will have for B.
The wife has received 82 per cent of the assets that are available to divide between the husband and wife (excluding the claim by the trustees who represent the husband’s creditors). Those assets will be used to assist in the future accommodation of the wife (and the children who are with her most of the time). As indicated, the wife’s weekly need of $1,131 per week does not include any costs for accommodation (apart from the allowance of $200 per week in respect of rates and levies). The wife records in her financial statement filed 13 June 2018 that regular mortgage payments were in the sum of $11,048 per month and that amount was being paid from the controlled monies account to maintain the mortgage on the Suburb E property. Notwithstanding the capital the wife shall have received, the wife will need extra regular funds to secure future accommodation for herself and the children and there is no allowance in the wife’s figures for any such commitment.
Accordingly, I find the wife still has a need for spousal maintenance in the sum of $1,000 per week.
In relation to the husband’s changed circumstances and capacity to pay, I accept that during his bankruptcy his position that he would continue to pay $1,000 per week to the wife by way of spousal maintenance but ignoring the provision for indexation in the 2014 orders, that amount is consistent with the 2014 orders and is a proper amount.
The question is whether or not the order for spousal maintenance after his bankruptcy should be limited to $500 per week as sought by the husband. Once released from his bankruptcy, given what I have found about the husband’s earning capacity, he would have the ability to pay what he formerly paid under the 2014 consent orders. Importantly the husband has not established that his circumstances have changed so as to create a basis for interference with the 2014 orders (given that the husband’s application for change only relates to the time after he is discharged from bankruptcy).
In those circumstances, I conclude that once the husband has been discharged from his bankruptcy, it would be proper to require the husband to pay the wife an ongoing amount of $1,000 per week by way of spousal maintenance indexed from the date of the new order on the same terms as set out in the 2014 consent orders.
Consequently I have concluded that even though the circumstances of the husband have changed as a result of his bankruptcy, the husband himself in effect does not suggest any change to the order during his bankruptcy but only after his bankruptcy. At that time his changed circumstances will no longer exist and he will again have a higher earning capacity available to him. I find that the amount ordered in 2014 is proper. The husband’s application therefore to discharge the 2014 spousal maintenance order will be dismissed.
Again as I have noted, the husband has filed an Application in a Case on 18 May 2020 which I have indicated I will dismiss on the basis that the husband did not seek to rely upon any evidence in support of that application. That is not to say however that the husband, if he wishes to continue the litigation, and having regard to the fact that arrears of spousal maintenance have been discharged to the date of these orders, may make a new application to vary the order that I have made based on a change in his circumstances that are in existence from the date of the order. Again, any such application would need to be heard by another judge.
I certify that the preceding four hundred and twenty-two (422) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Watts delivered on 25 June 2020.
Associate:
Date: 25.6.20
SCHEDULE 1 – the full text of the 2014 property settlement order
That as soon as the wife has located suitable residential premises, the husband shall pay to the wife an amount of $2,000,000 towards the purchase of the residential premises such premises to be owned and occupied by the wife client [sic] as her “residential premises” and such property shall be owned by the parties as to the husband 25% as to the wife 75%.
That in relation to the preceding order the following provisions shall apply:
2.1The husband shall meet the stamp duty on the purchase of the residential premises
2.2The monies shall be provided by the husband by way of borrowed funds secured against the residential premises
2.3The husband shall cause the borrowed funds to be repaid within 10 years of the date of these orders
2.4The repayment on the borrowed funds shall be met by the husband and he shall indemnify and keep indemnify [sic] the wife as to same
2.5That except as to land tax, the wife shall be responsible for 75% of the outgoings of the property and the husband shall be responsible for 25% of the outgoings
2.6That the husband shall be responsible for the land tax and any capital gains tax in respect of the residential premises
That at the expiration of 10 years or such earlier or later time as may be agreed, the wife shall be able to purchase the husband’s interest in the residential premises for such sum as is agreed or in default of agreement calculated by an agreed valuer such valuer to be nominated by the wife.
The husband shall not be permitted to compel a sale of the residential premises earlier than 10 years from the date of these orders unless as agreed.
In the event that either the husband or wife wish to sell their interest in the residential premises and the other does not wish to buy, then they shall both do all act things [sic] and sign all documents necessary to list the said residential premises for sale and the net proceeds shall be divided
a.As to the wife 75%
b.As to the husband 25% provided that the husband shall meet from his share any remaining mortgage on the said property
The husband shall meet the costs of a [motor vehicle] for the wife and shall pay the lease payment as and when they fall due and at the expiration of the lease the husband shall transfer to the wife all right title and interest in the vehicle and the wife shall then be liable for the remaining costs of the vehicle.
Until provision of that vehicle the husband will continue to pay all repayments for finance; insurance payments; costs of servicing; costs of maintenance and costs of repairs for the existing [motor vehicle].
The husband and wife shall divide the storage household items at the Suburb W home by agreement.
The husband shall facilitate the wife obtaining a copy of the family photos.
That except as provided for in these orders, that the wife shall retain for her sole benefit all assets chattels furniture in her possession and/or custody.
That except as provided for in these orders, that the husband shall retain for his sole benefit all chattels furniture in his possession and/or custody.
That the husband retain the art work in his possession and the wife to retain the artwork in her possession save that the husband shall make available to the wife for her benefit the Suburb W house model, the Artwork 1 and the Artwork 2 and shall make these available to the wife within 90 days of the date of these orders.
That the husband shall ensure he maintains a life insurance policy over his life with a death benefit of $3 million payable to the wife on his death and the wife shall be the beneficiary of the policy to $3 million.
The husband shall retain all his shares in X Pty limited; Y Pty Limited; Z Pty Limited; Q Pty Limited; AA Pty Limited; BB Pty Ltd; BB 2 Pty Ltd; N Pty Limited; and CC Pty Limited; and his beneficial interests in the DD Trust; the EE Trust; the FF Trust; the GG Trust; the HH Trust; II Pty Ltd and JJ Pty Ltd.
The husband shall retain all his superannuation entitlements in the KK Superannuation Fund; all bank accounts in his name; and all furniture, furnishings and effects in his possession.
The wife shall within 7 days resign any office held by her in the entities referred to in the preceding orders and transfer and assign to the husband any beneficial interest or shares held by the wife and execute a Deed of Relinquishment as a beneficiary in X Pty Limited; Y Pty Limited; Z Pty Limited; Q Pty Limited; BB Pty Ltd; BB 2 Pty Ltd; AA Pty Limited; DD Trust; EE Trust; FF Trust; GG Trust and HH Trust and Q Superannuation Trust.
That the husband will indemnify and keep indemnified the wife for all and any debts and liabilities of or arising out of the wife’s involvement with any of the corporate entities referred to in the preceding orders and shall indemnify the wife for all and any debts arising from any income attributed to her by any of the entities.
That simultaneously with the purchase of the residential premises as provided for in these orders, the husband shall secure on behalf of the wife a release of all guarantees and liabilities in respect of the FF Trust and any other entity referred to in these orders.
That the husband shall retain liability for and indemnify the wife in respect of all liability to Commonwealth Banking Corporation and St George Bank; all credit cards in the husband’s name; and all liabilities to LL Ltd and MM Ltd.
Superannuation splitting Orders
That these orders have effect from the operative time.
That in accordance with Section 90MT(1)(b) of the Family Law Act 1975, whenever a splittable payment becomes payable to the wife Ms Porter interest in the BB Pty Ltd atf Q Super Fund hereinafter referred to as the fund, the husband Mr Porter is entitled to be paid 100% of the splittable payment received by the wife and that there is a corresponding reduction in the entitlement that the wife would have had but for these orders.
That having been accorded procedural fairness in relation to the making of these orders, these orders bind the trustee of the fund.
The operative time for these orders is four business days after receiving a sealed copy of the court orders.
That the husband shall pay to the wife the follow [sic]
a.$10,000 forthwith
b.$10,000 within 3 months of the date of these orders
c.$110,000 within 12 months of the date of these orders
d.The sum of $15,000 in respect of the wife’s legals [sic] costs to NN Lawyers within 60 days of the date of these orders
e.The sum of up to $20,000 in respect of costs to OO Lawyers
SCHEDULE 2
Wife:
Affidavit 21.12.17
Affidavit 12.4.18
Affidavit 6.2.19
Affidavit filed 21.2.19 (trial affidavit with annexures)
Affidavit filed 25.2.19
Financial statement 13.6.18
The wife has referred to additional documents in her case outline which have been sworn by other parties but not relied upon by them. While I am generally aware of that material, the wife did not highlight how any of it would make a material difference to the outcome.
I have treated this as evidence relied upon by the wife
Husband:
Affidavit 27.11.17
Affidavit 24.1.19 plus annexures
Affidavit 1.3.19
Financial statement 21.12.17 (exhibit 58)
Ms O:
Affidavit 23.1.19 plus annexures
Affidavit 19.2.19
Affidavit 8.3.19
Affidavit of Mr BC 8.3.19
The Trustee:
Affidavit 23.1.19 plus exhibits
Affidavit 5.3.19
The part of the affidavit of 8.6.18 referred to at [23] of affidavit 23.1.19
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